“As the signals are becoming increasingly bearish for its bond market, the trigger for a potential re-rating of of Japan’s equity market may come from bond biased investors at home,” according to a Boost ETP research note. “In seeking equity income as a viable means to hedge against looming inflation risks, they should set in motion a redirection of domestic saving flows away from bonds and into equities.”

Inflation expectations for Japan now exceed the U.S., Boost ETP analysts said. Specifically, Long-term inflation expectations are 2.4%, or 0.4% higher than the U.S.

As inflation rises, a fixed-income investor’s real return diminishes. Japanese investors would have to earn an average annual return of at least 2.4% just to keep up with inflation.

However, Japanese bond yields are extremely low – Japanese investors plowed into bonds during the prolonged deflationary environment to maintain their wealth. Yields on benchmark 10-year Japanese Treasuries is hovering around 1.66%, compared to 10-year U.S. treasury yields at 2.61%.